Democracy And Economic Development

Another paper from this week’s NBER working paper series – chalk this one up as adding to the literature over the ambiguous relationship between democracy and democratic institutions on the one hand, and economic growth and development on the other (abstract; emphasis added):

The Democratic Transition
Fabrice Murtin, Romain Wacziarg

Over the last two centuries, many countries experienced regime transitions toward democracy. We document this democratic transition over a long time horizon. We use historical time series of income, education and democracy levels from 1870 to 2000 to explore the economic factors associated with rising levels of democracy. We find that primary schooling, and to a weaker extent per capita income levels, are strong determinants of the quality of political institutions. We find little evidence of causality running the other way, from democracy to income or education.

Note that the paper defines the relationship very narrowly, examining the relationship between just three variables – education, income and democracy (here proxied by the Polity index). I can’t speak to the methodology used here as I’m not fully conversant with it, but I would be concerned over possible omission of other variables that might change the results. Single equation methods, even with a large panel dataset, might lead to spurious regression results.

Nevertheless, the results obtained here resonate with my own views. Economic institutions and legal frameworks (probably) matter for development and growth, political institutions not so much.

Technical Notes

Murtin, Fabrice & Romain Wacziarg, "The Democratic Transition", NBER Working Paper No. 17432, Issued in September 2011